10/28/2011 8:55 PM ET|
Is credit monitoring a waste?
With its significant drawbacks, the service is not worth the money for most people. Besides, there are better, and cheaper, options if you need protection and want to reduce your risk.
For years, I've been telling you that credit monitoring is a waste of money for a lot of people.
Then I signed up for a credit-monitoring service.
For several months, I've watched my credit scores bounce around and fielded alerts about changes to my credit reports. I've learned a few things. And I've come to a new conclusion: Credit monitoring is a waste of money for the vast majority of people.
Here are my biggest beefs about credit-monitoring companies:
1. They lie
Many of these companies tout "free" credit scores, and some even try to pretend they're the official, federally mandated site that offers free credit reports. (The real site is AnnualCreditReport.com, by the way. The one and only.)
Way too many readers tell me they had no idea they were signing up for credit monitoring until the charges started appearing on their bills. If a credit-monitoring company gives you free scores, here's the scoop:
- They're probably not the FICO scores that most lenders use.
- Or you're signing up for credit monitoring that isn't free.
- Or both.
If the scores you're getting don't say they're FICOs, they aren't FICOs -- they're something else, and they may not be scores that any lender uses.
2. They lie, part 2
When companies actually are upfront about what they're selling, they often advertise credit monitoring as identity-theft "protection." Credit monitoring doesn't protect you from identity theft any more than an ice pack protects you from getting been punched. It may help a bit afterward, but it doesn't prevent the blow.
Credit monitoring won't stop bad guys from taking over your credit cards or establishing new accounts in your name. At best, it will give you an early warning that the damage has been done. The "insurance" policies many monitoring companies offer are essentially worthless, since most people who are victimized face few, if any, out-of-pocket expenses.
3. They're expensive for what you get
You typically pay $15 to $20 a month, or up to $240 a year, for credit monitoring. That's a sizable chunk of change for many households. For that kind of money, you should get something significantly better than what you can get on your own for free. Most of the time, you don't. Many companies don't watch your reports at all three credit bureaus, and not all creditors report to all three bureaus. That leads to gaps in what's being monitored.
Also, creditors can be pokey in reporting changes, especially new accounts, to the bureaus, so you might not be getting as much of a head start on cleaning up any problems as you think.
4. They're confusing
The one rationale I thought might hold up was the idea that following the gyrations of your credit scores could help you better understand how credit scoring works. In reality, not so much.
For one thing, you're probably not seeing the FICO scores lenders use. Most credit-monitoring companies offer "consumer education scores" or VantageScores that are created from different formulas and that react differently than your FICOs do.
Even if you're using the myFICO.com service that offers actual FICOs, you may not glean much from short-term movements of your scores. Here's just one example: The FICO formula is set up so you can improve your scores over time by paying down your credit card balances. Higher balances can hurt your scores. But in watching my FICOs, I noticed sometimes they went down when my balances rose, and sometimes they didn't.
In actuality, what's happening with your scores depends on a lot of different factors, and FICO keeps the exact details of its formulas a secret. So you can't predict precisely how any given action will affect your scores, or by how much. Trying to reverse-engineer it from the back end, just by watching your scores bounce around, is unlikely to increase your understanding. If your primary concern is improving bad or mediocre credit, you may be better off buying your scores from myFICO.com for $20 each once every few months and following the detailed advice the site gives on how to improve your numbers.
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Pay your bills on time, Pay credit cards off monthly, Limit all outstanding credit to a minimum. Your SCORE will take care of itselfs and you might actullay have some cash left over to save and invest each month. It is not rocket science but DISCIPLINE, DISCIPLINE,DISCIPLINE-Like in real estate - location, location, location!
It is called FINANCIAL DISCIPLINE!
It wasnt a pain to cancel, I emailed them when I signed up and told them when to cancel it. They did. I do agree that for 90% of people, it isnt really necessary. I dont really care now, it will be a few years before I seek another large loan, and I review my yearly free report to prevent further errors. To me the score is just a normal number once again.
Besides the two cases I gave, I feel most people would be ok freezing their credit report and checking them yearly,
Disagree if you like. I am not the one with any credit / cash problems.
( how much for each time they pull a credit report & get a score). Every scoring system has a different scale of numbers even FICO has multiple scoring systems with different scales. You should be concerned about what category your score is in because a creditor does not base you getting approved for a better % by the number but by your category, debts, finance, address history, employment history, and how much potential debt you can accur on the open accounts on your file.
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